Ohio has officially entered a new era of fiscal policy. Starting in 2026, the state fully transitioned to a flat tax system. This move simplifies the filing process and increases the state’s economic competitiveness. The change concludes a multi-year effort to condense Ohio’s complex, multi-bracket tax structure into one streamlined rate.
The Shift to 2.75%
The headline of this reform is the new 2.75% flat tax rate. This rate applies to all taxable non-business income above a specific threshold. For the 2026 tax year, the zero-tax bracket remains at $26,050.
If your Ohio taxable income is at or below $26,050, you still owe no state income tax. For every dollar earned above that amount, you pay a uniform 2.75% rate. This replaces the transitional system used in 2025. During that year, the top rate was 3.125% for income over $100,000, while the 2.75% rate covered the $26,050 to $100,000 range.
Why the Change Happened
State legislators pushed for this transition with three primary goals: simplicity, transparency, and growth.
-
Tax Simplification: Removing graduated brackets makes state tax math much easier for the average filer.
-
Regional Competitiveness: Ohio now boasts a flat rate lower than those in neighboring states like Indiana, Michigan, and Pennsylvania.
-
Attracting Talent: Proponents argue that a predictable tax environment encourages professionals and businesses to stay in the Buckeye State.
Impact on Different Income Levels
The move to a flat tax reduces costs for many, but the actual impact depends on your annual earnings.
-
High Earners: Those earning over $100,000 see the most direct benefit. Their marginal rate drops from the 3.125% transitional rate to the 2.75% flat rate.
-
Middle-Income Filers: For those already in the 2.75% range, the rate remains the same. However, other tax code changes may affect your total liability.
-
Low-Income Filers: Residents earning less than $26,050 stay exempt from state income tax. This maintains the status quo for Ohio’s lowest earners.
Adjustments to Credits and Exemptions
The 2026 plan includes specific adjustments for high-income households to offset the tax cut’s cost. Taxpayers with a modified adjusted gross income (MAGI) exceeding $500,000 no longer qualify for personal and dependent exemptions. Additionally, these households cannot claim the joint filer credit.
Ohio also suspended the annual inflation indexing for personal exemptions for 2026. Because the state moved to a flat tax, bracket indexing no longer applies. Consequently, the $26,050 “floor” will not automatically rise with inflation this year. This change slightly increases the tax base as wages grow.
Looking Ahead
The move to a 2.75% flat tax is a significant milestone, but more changes may come. Some lawmakers want to further reduce or eventually eliminate the state income tax entirely. These future moves depend on revenue triggers and economic performance…